Chapter 07Revenue and Collection CycleTrue / False Questions1.A price list master file contains the product unit prices that are used for billing customers. True False2.The accountants who record cash receipts and credits to customer accounts should not handle the cash. True False3.Credit checks should be performed by the sales department before credit is approved. True False4.The aging information for accounts receivable is typically used in connection with assessing the allowance for doubtful accounts. True False5.A comparison of checks listed on a sample of deposit slips to the detail of customer credits posted to customer accounts receivable can be an audit test for lapping. True False6.If control risk is assessed very low, the substantive audit procedures on account balances must be expanded. True False1 | P a g e
7.A confirmation procedure scheduled on the year-end date with a large sample of customer account balances is necessary if tests of controls reveal control weaknesses. True False8.Auditors should notplace total reliance on controls to the exclusion of other substantive testing procedures. True False9.An objective for an audit is to obtain evidence related to management'sfinancial statement assertions. True False10.When obtaining evidence about accounts receivable, auditors must put emphasis on the completeness and obligations assertions. True False11.Inquiries of management usually do notprovide very convincing evidence about the existence and rights assertions. True False12.A computer generally cannot be used for scanning large files of accounts receivable for unusual credit balances. True False13.The use of confirmations to test accounts receivable is considered a generally accepted audit procedure. True False14.Confirmations yield evidence about existence and the gross valuation ofa receivable balance. True False2 | P a g e
Multiple Choice Questions15.To be recognized, revenues must also be realized or realizable and A. Foreseeable.B. Collected.C. Earned.D. Shipped.16.The SEC requires all of the following for revenue to be recognized except A. Cash is collected.B. Persuasive evidence of an arrangement exists.C. Delivery has occurred or services have been rendered.D. The seller's price to the buyer is fixed or determinable.17."Bill and hold" refers to an arrangement where A. Sales are recorded but are not shipped.B. Sales are shipped but are not recorded.C. Sales are billed but not collected.D. Inventory is held but not billed.3 | P a g e
18.Custody of inventory is transferred to the shipping area upon authorization of A. The customer order.B. The shipping order.C. The invoice.D. The purchase order.19.The document that generates recording of a sale is the A. The customer order.
- Fall '11
- Financial audit, invoice, collection cycle